Puffer Finance, a liquid staking derivatives (LSD) project built on the Ethereum restaking protocol Eigenlayer, is partnering with the Ethereum Foundation to develop base rollups. This move comes after Puffer Finance raised $18 million in a Series A funding round to launch its mainnet.
Rollups are solutions designed to enhance scalability by processing transactions off-chain and then bundling them into a single transaction on the main blockchain. In an interview, Amir Fourouzani, co-founder of Puffer Finance, highlighted the ongoing market demand and challenges:
“Currently, there’s a challenge in the Ethereum ecosystem known as liquidity fragmentation. This issue arises because projects like Optimism, Arbitrum, and ZKSync are creating their own ‘super chains,’ leading to isolated pools of liquidity.”
Fourouzani emphasized the need for base-sequencing and base rollups to ensure interoperability and communication between these chains. He explained that Puffer Finance has developed a way to organize pre-confirmations on Ethereum layers while keeping validators decentralized, without requiring an overall Ethereum Improvement Proposal (EIP):
“It took us years to architect and come up with this, but now we have it,” he said. “This is the current central area of research for the Ethereum Foundation. The thought leaders over there are trying to push this forward with leaders such as Justin Drake and others.”
Fourouzani illustrated the potential of base rollups in decentralized finance (DeFi):
“In the future, every company is going to have its host AppChain. Let’s say Aave has its own AppChain, and liquidation is going to hit Aave; well, it’s going to be represented immediately on Uniswap’s AppChain. This is the ultimate dream. Uniswap and Aave don’t have to go through any governance token, nor do they have to rely on any governance process. So we are also getting to a credible neutral layer of rollups.”
He also highlighted another benefit of an interoperable base app chain ecosystem: native yields. “A lot of users would rather have their tokens generating yield effortlessly in their wallets rather than just keeping them on the base chain,” he commented.
According to DefiLlama, shortly after its early test phase in February, Puffer Finance surpassed a total value locked (TVL) of $1.7 billion. To date, the protocol has raised a total of $23.5 million in venture capital funding.
Puffer Finance’s current LSD technology allows Ethereum validators to reduce their capital requirement to just 1 Ether, down from the 32 ETH required for individual stakers. Additionally, users who stake Ether via Puffer receive Puffer liquid restaking tokens (nLRTs), which can be used to farm yields in other DeFi protocols simultaneously with their Ethereum staking rewards.
Summary Review: Puffer Finance’s move to develop base rollups in collaboration with the Ethereum Foundation marks a significant step toward addressing liquidity fragmentation and enhancing interoperability within the Ethereum ecosystem. By enabling validators to reduce their staking capital and offering innovative solutions for yield generation, Puffer Finance is positioning itself as a key player in the evolving landscape of decentralized finance. As the market matures and the hype settles, initiatives like these will likely drive the next wave of growth and adoption in the crypto space.
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